This summer the Minnesota Supreme Court wrestled with an issue that directly impacts all mechanic’s lien claimants and that—until now—represented an unanswered question in Minnesota law. On July 22, 2010, the Minnesota Supreme Court held that when a lien claimant chooses to file a blanket lien pursuant to Minnesota Statutes: (1) one lien is created that encumbers the whole area improved and the amount of the lien is spread evenly amongst each lot in the area; and (2) the lien claimant cannot enforce this blanket lien against less than all of the property subject to the lien. Premier Bank v. Becker Development, LLC, et al.

In order to understand the meaning and the impact of the court’s ruling in Premier, one must first understand what a blanket mechanic’s lien is and how one is created. Minn. Stat. § 514.09 governs a lien claimant whose work covers two or more buildings upon one lot or whose work is upon adjoining lots under one general contract with the owner. If the lien claimant falls within the statute’s purview, then the lien holder has two options for filing a lien: (1) a blanket lien, which is one lien “for the entire claim” that “embrac[es] the whole area so improved;” or (2) separate liens on each lot, and asserting a proportional amount on each lot. Although the statute contemplates blanket liens, it does not address how one is foreclosed. Thus, the Minnesota Supreme Court grappled in Premier with the issue of whether a lien claimant can foreclose the blanket mechanic’s lien against selected lots for the entire amount of its lien.

This central issue in Premier stemmed from the defendant general contractor who had filed a blanket lien in the amount of $266,623.00 against all 59 lots in a residential development. Three of the 59 lots contained model homes and the general contractor’s lien on these lots was superior to the bank’s mortgage. On the remaining 56 lots, the general contractor’s lien was inferior to the bank’s mortgage. Thus, the general contractor foreclosed on the three lots which it held first position and argued that Minn. Stat. § 514.09 allowed the enforcement of the entire lien amount of $266,623.00 to be assessed against only the three lots, for approximately $88,874.00 per lot. The bank countered that the blanket lien must be enforced on a pro rata basis for approximately $4,519.00 per lot. The district court ruled in favor of the general contractor, holding that it could foreclose its entire lien claim of $266,623.00 against the three model-home lots. The Minnesota Court of Appeals agreed with the district court holding that the general contractor was allowed to foreclose a blanket lien against less than the entire development.

The bank appealed the decision to the Minnesota Supreme Court, arguing that the court of appeals erred in its holding because the statute requires the lien claimant to foreclose the blanket lien as a single lien against all of the lots improved, not only those on which the lien was superior to the mortgage. The general contractor argued that because the statute is silent as to how a lien claimant forecloses a blanket lien, the statute is ambiguous and therefore, the language must be liberally construed in favor of mechanic’s lien claimants. Although the supreme court agreed that section 514.09 is silent as to how one forecloses a blanket lien, it disagreed with the general contractor’s interpretation of the statute’s silence and held that the statute “supports the conclusion that the legislature intended that a blanket lien created under section 514.09 be spread pro rata.”

The supreme court explained its holding by stating that the absence of an explanation in section 514.09 as to how to foreclose a blanket mechanic’s lien does not render the statute unclear or ambiguous. The court noted that section 514.09 explains how a blanket lien is created and section 514.10 provides for the manner in which all mechanic’s liens are foreclosed. Thus, the Minnesota Supreme Court concluded that a blanket lien is foreclosed in accordance with 514.10, which is the same manner as any other lien created by section 514.

Moreover, the supreme court examined the substance and purpose of a blanket lien. A blanket lien is for the entire amount of the lien and it relieves claimants of the burden of keeping separate accounts and filing separate liens against each lot. On the other hand, if the claimant chooses to file separate liens with proportionate amounts attributed to each lot, then the lien claimant has the burden of providing the specific amount that is attributed to each lot. The court stated that by arguing a lien claimant can enforce the entire lien amount against less than the whole project, the general contractor:

is asking for a right that is not provided by 514.09 – “the right to file a blanket lien against the whole project for the entire amount of the lien and then to essentially change that election by enforcing separate liens with different values against each lot in the project. We cannot read such a right into the Statute.

Thus, Premier has now definitively provided the guidance a lien holder needs to ensure that its mechanic’s lien is being properly foreclosed pursuant to the statute. In some cases this method of foreclosure may reduce a lien claimant’s likelihood of recovery because the lien holder can no longer foreclose the entire amount of the lien on the lots for which they enjoy priority. On the other hand, it protects a land owner because the owner will no longer be forced to pay for work the lien holder performed on other lots in the development.